My husband is 50 and I am 47. We have a combined income of 10 lakhs per month. Our kids are 17 and 14 yet to go to college. What should be our monthly savings? How should we diversify our funds? What is the retirement corpus we should have assuming that our present monthly expense is one lakh/ month on groceries, transport, school fees, travel, salaries etc

Ans: It's great that you're thinking ahead for your children's education and your retirement! Here's a suggested plan to meet your goals:

1. Children's Education Fund:

• Since you have 7 to 12 years for your children's higher education, you can invest in relatively aggressive investment options like mutual funds or diversified equity funds. These have the potential to offer higher returns over the long term.
• Allocate a portion of your savings every month towards this goal. Considering inflation and assuming an average annual return of 10%, you would need to invest roughly Rs 20,000 to Rs 25,000 per month to accumulate the desired amount for each child's education.

2. Retirement Planning:

• Since you and your wife have 15 and 7 years left for retirement respectively, you'll want to focus on building a retirement corpus.
• Consider investing in a mix of equity and debt instruments to balance risk and returns. You can invest in mutual funds, provident funds, and Public Provident Fund (PPF) for a balanced portfolio.
• Aim to save at least 15-20% of your combined monthly income for retirement. Considering your current earnings, you can aim to save around Rs 50,000 to Rs 60,000 per month for retirement.

3. Asset Allocation:

Since you have a relatively long investment horizon for both goals, you can afford to have a higher allocation towards equities for potentially higher returns. As you approach your retirement age, gradually shift towards more conservative investment options to preserve capital.

4. Emergency Fund:

Make sure to maintain an emergency fund equivalent to 3-6 months of your combined living expenses. This fund should be readily accessible in case of unexpected expenses or emergencies.

5. Regular Review:

Regularly review your investment portfolio and make adjustments as needed based on changes in your financial situation, market conditions, and investment goals.

6. Professional Advice:

Consider consulting with a financial advisor to tailor a plan specific to your financial goals, risk tolerance, and investment preferences.

By following this plan diligently and investing consistently over the years, you should be well-prepared to meet your children's education expenses and enjoy a comfortable retirement.

Ans: Crafting a Retirement Plan for Financial Freedom
Your proactive approach towards retirement planning is commendable. Let's develop a comprehensive strategy to ensure a comfortable retirement at the age of 52.

Assessing Your Current Financial Situation
Asset Allocation
Evaluate your current assets, including investments, savings, and other holdings, to understand your financial position.

Identify areas for optimization and potential gaps in your retirement portfolio.

Setting Retirement Goals
Desired Retirement Lifestyle
Define your desired retirement lifestyle, considering factors such as travel, hobbies, and healthcare expenses.

Estimate your monthly income requirements to maintain your chosen lifestyle during retirement.

Calculating Retirement Corpus
Retirement Expenses
Factor in anticipated expenses during retirement, including living expenses, healthcare, children's education, and other financial commitments.

Calculate the total retirement corpus required to sustain your lifestyle throughout your retirement years.

Strategies to Achieve Retirement Goals
Optimizing Investments
Review your existing investment portfolio and reallocate assets to align with your retirement objectives and risk tolerance.

Consider diversifying your investments across various asset classes to minimize risk and maximize returns.

Retirement Savings
Maximize contributions to retirement accounts such as EPF, PPF, and voluntary retirement schemes to bolster your retirement savings.

Explore additional avenues for retirement savings, such as tax-efficient investment options and voluntary contributions to retirement plans.

Budgeting and Expense Management
Implement strict budgeting measures to control expenses and increase savings potential.

Identify areas where expenses can be reduced or eliminated to allocate more funds towards retirement savings.

Educating Children about Financial Responsibility
Financial Literacy
Educate your children about financial management and the importance of responsible spending and saving habits.

Encourage them to pursue higher education scholarships and part-time employment opportunities to lessen the financial burden on your retirement savings.

Benefits of Regular Funds Investing through MFD with CFP Credential
Disadvantages of Direct Funds
Direct funds require active management and market knowledge.

Investors may lack expertise in fund selection and portfolio management.

Benefits of Regular Funds Investing through MFD with CFP Credential
Working with a Certified Financial Planner ensures personalized guidance and expert advice.

MFDs provide tailored investment strategies aligned with your financial goals and risk profile.

Monitoring and Adjusting Your Retirement Plan
Regular Review
Monitor the performance of your investments and revisit your retirement plan annually to track progress towards your goals.

Make necessary adjustments to your investment strategy and savings plan based on changing market conditions and personal circumstances.

Conclusion
By implementing a holistic retirement plan that encompasses investments, savings, and expense management, you can achieve financial independence and retire comfortably at the age of 52.

Consulting a Certified Financial Planner will provide invaluable insights and guidance tailored to your specific financial goals and aspirations.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: No loans and a good monthly income of Rs 4 lakhs is a great foundation. Managing monthly expenses of Rs 1 lakh also shows disciplined financial habits.

Setting Retirement Goals
You aim to retire at 55, which is in 15 years. It’s crucial to assess your financial goals, including your daughter’s education and lifestyle after retirement.

Estimating Post-Retirement Expenses
After retirement, your expenses may change. While some expenses like commuting will reduce, healthcare and leisure might increase. Assume monthly expenses of Rs 1 lakh now. Post-retirement, adjusting for inflation, this could be around Rs 2.4 lakhs per month.

Accounting for Inflation
Inflation significantly impacts long-term financial planning. Assuming an average inflation rate of 6%, your current Rs 1 lakh monthly expense will need to grow to cover higher costs in the future.

Daughter’s Education Fund
Higher education costs are rising. Let’s estimate a fund for your daughter’s college education, considering current and future costs. A reputed Indian college might cost around Rs 25-30 lakhs today, which will likely increase over the next 8 years.

Building a Retirement Corpus
Given your retirement timeline, you need to build a significant corpus. This will support your lifestyle and healthcare needs. Your current earnings give you a solid base to start with.

Investment Strategy
Diversified Portfolio
Investing in a diversified portfolio is key. Consider equity, debt, and hybrid funds. Equities can offer higher returns, while debt provides stability. Hybrid funds balance the two.

Actively Managed Funds
Actively managed funds often outperform index funds in the long run. Professional fund managers adjust the portfolio based on market conditions, potentially offering better returns.

Regular Mutual Funds Through CFPs
Regular mutual funds, managed by a certified financial planner (CFP), can be advantageous. CFPs provide professional advice, helping you navigate market complexities and optimize returns.

Emergency Fund
Maintain an emergency fund. It’s essential for unexpected expenses. Aim for 6-12 months’ worth of expenses in a liquid, easily accessible form.

Insurance Coverage
Ensure adequate health and life insurance. Health insurance is critical, especially as you age. Life insurance protects your family’s financial future. Avoid investment-cum-insurance policies; pure insurance products are better.

Surrendering Unproductive Policies
If you hold LIC, ULIP, or investment-cum-insurance policies, consider surrendering them. Reinvest the proceeds into mutual funds. These policies often have high charges and low returns.

Tax Planning
Efficient tax planning can save money. Utilize tax-saving instruments under Section 80C, 80D, and others. Mutual funds like ELSS can help save tax while providing good returns.

Monitoring and Reviewing
Regularly monitor and review your investments. Financial goals and market conditions change. Adjust your portfolio as needed, ideally with the help of a CFP.

Early Retirement Considerations
Retiring early at 55 means your corpus needs to last longer. Plan for at least 30 years post-retirement. This requires a careful balance of growth and safety in your investments.

Role of Certified Financial Planners
CFPs offer expertise in creating a holistic financial plan. They help in choosing the right investments, optimizing returns, and ensuring your goals are met efficiently.

Benefits of Actively Managed Funds
Actively managed funds adapt to market changes. Skilled managers can capitalize on opportunities and mitigate risks better than passive index funds. They also offer personalized investment strategies.

Addressing Direct Fund Disadvantages
Direct funds require individual management. They lack professional guidance, which can lead to suboptimal decisions. Investing through a CFP ensures professional management and better alignment with your goals.

Contingency Planning
Always have a contingency plan. Unexpected events can derail your financial plans. A solid contingency fund and insurance coverage provide a safety net.

Education Planning
For your daughter’s education, consider child-specific mutual funds. These funds are tailored to meet educational expenses, providing both growth and safety.

Retirement Lifestyle
Visualize your retirement lifestyle. Consider hobbies, travel, and other activities you wish to pursue. Budget for these, ensuring you have enough funds to enjoy your retirement fully.

Final Insights
Planning for retirement is a multifaceted process. It requires a balanced approach, considering various aspects like inflation, education, and lifestyle. Engaging with a certified financial planner can significantly enhance your financial journey, ensuring you meet your retirement goals comfortably.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: It’s great to see you planning your financial future early. Let’s break down your current financial status and develop a strategy to secure your retirement and future child’s education.

Understanding Your Current Financial Status
Income and Expenses

Monthly income: Rs. 2.5 lakhs
Monthly expenses: Rs. 30,000
Home loan: Rs. 50,000
Current Investments

Fixed deposit: Rs. 2 lakhs
PPF: Rs. 7 lakhs
NPS: Rs. 3 lakhs
Stock market: Rs. 2 lakhs
Your financial discipline and savings are commendable. Let's build on this to achieve your goals.

Estimating Future Needs
Retirement Corpus
Estimating your retirement needs depends on various factors like current lifestyle, inflation, and expected rate of return on investments. As a rule of thumb, you should aim to build a retirement corpus that is 20-25 times your annual expenses at retirement. This ensures you can maintain your lifestyle post-retirement without financial worries.

Child’s Education Fund
Higher education costs are rising rapidly. It's wise to plan early to ensure your child gets the best education possible. Depending on the course and country, the cost can vary significantly. However, planning for at least Rs. 50 lakhs to Rs. 1 crore for higher education is a good start.

Investment Strategies for Financial Goals
Diversifying Investments
Mutual Funds

Mutual funds are an excellent choice for long-term investments due to their potential for high returns and the power of compounding. They also offer diversification, reducing risk.

Equity Funds: Suitable for long-term goals like retirement and child’s education. These funds invest in stocks, which have the potential for high returns.

Debt Funds: These are less risky than equity funds and are good for medium-term goals. They invest in fixed-income securities.

Hybrid Funds: A mix of equity and debt funds, providing a balance between risk and return.

Systematic Investment Plan (SIP)

Investing through SIPs is a smart way to invest in mutual funds. It allows you to invest a fixed amount regularly, ensuring discipline and averaging out the investment cost.

Power of Compounding

The longer you stay invested, the greater the power of compounding. Your money earns returns, and these returns also earn returns, leading to exponential growth over time.

Public Provident Fund (PPF)
PPF is a safe and reliable investment with tax benefits. It offers decent returns and should be a part of your retirement planning. Continue your contributions to PPF for steady, risk-free growth.

National Pension System (NPS)
NPS is a great retirement-focused investment with tax benefits. It offers a mix of equity, corporate bonds, and government securities. Continue your contributions to NPS for a well-rounded retirement corpus.

Setting Up a Financial Plan
Monthly Budget Allocation
Allocate your monthly income wisely to cover expenses, loan repayment, and investments.

Expenses: Rs. 30,000
Home loan: Rs. 50,000
Investments: Rs. 1.7 lakhs
Emergency Fund
Maintain an emergency fund equivalent to 6-12 months of expenses. This ensures financial stability during unforeseen events. Your current fixed deposit can serve as part of this emergency fund.

Investment Allocation
Short-Term Goals (1-3 years)

Emergency fund
Fixed deposits
Short-term debt funds
Medium-Term Goals (3-5 years)

Debt funds
Hybrid funds
Long-Term Goals (5+ years)

Equity mutual funds
PPF
NPS
Regular Review and Adjustment
Review your financial plan regularly and adjust based on changes in income, expenses, or goals. Stay updated on market trends and adjust your investment strategy accordingly.

Risk Management
Insurance

Ensure you have adequate health and life insurance to protect against unforeseen events. This is crucial for safeguarding your financial future.

Benefits of Actively Managed Funds
Actively managed funds have professional fund managers making investment decisions to maximize returns. They can potentially outperform index funds, especially in volatile markets. Regularly monitor fund performance and switch if necessary.

Final Insights
Planning for retirement and child’s education requires a disciplined approach. Diversify your investments, utilize the power of compounding, and regularly review your plan. By starting early and staying committed, you can achieve your financial goals comfortably.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hello;

Since NPS will be available only after you reach 60 and no info. about any rental income from real estate investment hence both are kept out of our purview.

1.Higher education goals for children typically start after 12th so we have 6 to 8 years for kid's education financial goal(4 Cr) attainment.

I have split it in two tranches:
A. 2 Cr after 6 years
B. 2 Cr after 8 years

For achieving target A following will work:
Direct stocks corpus of 80 L will grow into a sum of 1.5 Cr after 6 years. (Moderate return of 11% assumed)

PPF corpus and contributions will grow into a sum of 50 L+ after 5 years block when you may withdraw this corpus towards this goal. (6.9% return considered)

So 1.5 + 0.5=2 Cr

For fulfilling target B following will work:
MF corpus of 50 L will grow into a sum of 1.15 Cr after 8 years. (11% return considered)

50% of SSY corpus eligible for withdrawal expected to be around 27.85 L. (8% return assumed)

Direct stock monthly sip of 20 K will grow into a sum of 30.85 L in 8 years.(11% return considered)

Gold corpus of 14 L will grow into a sum of 24.05 L. (7% growth assumed)

So 1.15+27.85+30.85+24.05~~2 Cr

2. Target for Marriage of offspring:
1 Cr.
3. Retirement pension: 4 L per month
13 years from now.
Investible surplus left after all monthly investments utilized for fulfilling above targets should be immediately redirected to monthly SIPs in mutual funds. That includes 20 K direct stock sip, 12.5 K/pm SSY investment after 8 years from now and 12.5 K/pm PPF investment 5 years from now.

Also the 50 K getting free from loan EMI after 5 years should be converted into a mutual fund SIP.

After accounting for monthly expenses and monthly investments, from the balance 80 K, I would suggest you to deploy 50 K into MF sip since it will help in target achievement.

So summarily 12.5 K/8 yr, 12.5 K/5 yr, 20 K/5 yr, 50 K/8 yr and 250 K/13 yr will yield you a comprehensive corpus of 9.89 Cr. Add balance 50% SSY corpus of 27.5 L to this and your total corpus comes to 10.16 Cr. (MF returns assumed at a modest 11%)

Earmark 1 Cr for offspring wedding as envisaged.

Net retirement corpus will be 9.16 Cr. An immediate annuity at 6% will yield you a monthly income of 4.58 L from the age of 55 as planned.

You may use commutable corpus of NPS(60%) to buy your house. While NPS annuity portion(40%) may yield you a delta per month so as to have post tax income of 4 L per month.

This looks achievable because you have managed your finances and investments outstandingly well.

I discourage people to take direct stocks exposure especially when they are nearing the retirement but if you have the knowledge and temperament you may dabble into it subject to some minimum amount earmarked as risk capital.

I am sure you have adequate insurance cover for life and health.

Kudos again to your meticulous fiscal planning and execution.

Happy Investing!!

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.